Strengthen Institution’s Support for Small, Midsize Companies

There is reportedly an aim to ease regulations on Shoko Chukin Bank to the level of private banks and strengthen its support for small and midsize companies. This move should help revitalize local economies, which have been battered by the COVID-19 pandemic.

An expert panel at the Economy, Trade and Industry Ministry has released a report calling for the government to sell its entire 46.5% stake in Shoko Chukin Bank.

Shoko Chukin Bank is a government-affiliated financial institution established under the Shoko Chukin Bank Law; its main investors are the government and small and medium-sized business cooperatives. The bank is unique in the fact that small and medium-sized business cooperatives are directly involved, and it specializes in loans to small and midsize companies.

The sale of the government’s shares would allow the bank to have greater freedom in its management, enabling it to invest in the revitalization of companies, which it has not been allowed to do in the past. The bank would also be able to dispatch personnel to companies struggling to find successors.

The business environment for small and midsize companies is increasingly severe due to such factors as soaring prices for raw materials. Wage increases are also needed to secure human resources. Aiming to allow the bank to provide more generous support to small and medium-sized enterprises is understandable.

However, the Shoko Chukin Bank Law will be retained, and the sale of shares will be limited to organizations related to small and midsize businesses. The “crisis-response loan” system, which uses public funds to quickly lend funds in the event of a disaster or financial crisis, will also reportedly continue.

Shoko Chukin was subject to administrative punishment in 2017 over a major scandal uncovered in its crisis-response loans.

When providing crisis-response loans to companies severely affected by the global financial crisis triggered by the 2008 collapse of U.S. investment bank Lehman Brothers and the 2011 Great East Japan Earthquake, the bank falsified documents and other information to extend loans to companies that were not actually eligible for the loans, thereby inflating the amount of money provided.

Some believe the scandal may have occurred due to a “bureaucratic mindset” that prioritized using the entire budgetary allocation for crisis-response loans. Since then, the bank has been working to reform its management, bringing in a person from the private sector as its president.

The fact that the government will remain involved in Shoko Chukin Bank is viewed by private-sector financial institutions as a sign that it will maintain its robust creditworthiness, and there is a strong sense of caution among private-sector financial institutions that it could cause unfair competition in the industry.

If the scope of its operations is to be expanded, it is essential that Shoko Chukin Bank be reborn as a truly useful financial institution for small and midsize companies, based on the lessons learned from the scandal.

In 2006, the government decided to completely privatize Shoko Chukin Bank. However, the global financial crisis and other events increased the need for crisis-response loans, and the sale of the government’s shares has been repeatedly postponed.

In response to the report, the government plans to submit a bill to the current Diet session to revise the Shoko Chukin Bank Law. The sale is expected to take place within two years after the law’s revision.

It will be important to support local economies in cooperation with private-sector financial institutions, taking into consideration concerns about the possible repercussions on the private financial industry.

(From The Yomiuri Shimbun, Feb. 21, 2023)